One of the many considerations when taking a new role in another county is buying or renting a new home.
Our latest article take a look at the house pricing trends over the past decade and the more recent developments driven by the pandemic and the war in Ukraine.
According to a recent economics survey from Bloomberg, at least 19 of the OECD countries now have higher price-to-rent and home price-to-income ratios than they did before the 2008 financial crisis. And with the majority of banks around the world rapidly raise interest rates, housing markets in Europe are particularly vulnerable to prices potentially free falling.
Over the past decade house prices throughout much of the European Union have increased to a much larger extent compared to the cost of renting a home. The long term trend shows that the cost of purchasing a home has increased by 45%, while rent increases have been about 17%.
Notably, the trend began to change the housing market back in 2015, when the price of owning a house began to rise at a quicker rate than that of renting one. Even in traditionally rent driven markets, in countries like Germany, the market has continued to witness the same trends.
According to the European Commission, as the Europeans economies continue to recover from COVID-19, rents and home prices climbed by 1.4% and 10.5%, respectively, last year. With the trend occurring in the majority of European states, the top hotspots are Estonia, Hungary and Luxembourg each witnessing triple digit growth.
While the rise in rental prices has not been as seismic, during the same timeframe, it has occurred in 25 of 27 EU countries. With Estonia, Lithuania and Ireland experiencing the largest shifts.
Undoubtably, rising housing costs throughout Europe will put additional strain on family budgets that are already being stretched by inflation and the ongoing energy crisis. that has raised the prospect of supply restriction in Germany.
The war in Ukraine has driven the largest population shift in Europe since WWII and has forced a dramatic shift in European real estate. Creating an immense strain on both the long- and short-term housing markets within Ukraine, and the countries that welcomed the most Ukrainian refugees.
Limited supply and a surge in demand has meant rising housing costs in these countries (notably eastern and central Europe). For example, Poland’s largest cities saw a 20% increase in rental prices. And with a state-wide trend of the growing cost of debt, coupled with the war in Ukraine, the global residential market’s recovery is potentially shuddering to a halt.
Could the apparently unshakable real-estate boom in Europe be coming to an end?
The majority of economists agree that a recession may be on the horizon, as we confront higher interest rates and the worst cost-of-living problem in a generation. In May, the European Central Bank issued a statement that if mortgage rates affect housing prices by rising faster than inflation, tough fiscal consequences could follow.
According to ECB estimates based on the relationship between house prices and earnings, the current rises indicate that the typical Eurozone home is currently overvalued by roughly 15% and up to 60% in certain countries.